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Yesterday Quantonation which promotes itself as a one-of-a-kind venture capital (VC) company specializing in quantum science and deep physics announced its second fund targeting 200 million. The very idea that any VC could target quantum technologies (writ large) is interesting, and, depending upon your point of view, perhaps premature. Worldwide, investments in quantum computing likely dont exceed $5 billion in total.

Debate swirls over when the many marketable pieces of quantum information technology will be ready for prime time. Certainly not soon for quantum computers though D-Wave might disagree. Quantum networking is likewise realistically nascent. Post quantum cryptography (PQC) is getting off the ground, but thats (mostly) not really quantum tech. Quantum sensors work great but are hardly cheap. Deep physics encompasses a bundle of things, many of which will play critical supporting roles for quantum information science.

Turning this basket of technologies into companies with products and markets with profits is Quantonations mission.

Half in jest, Will Zeng, a Quantonation partner told HPCwire, When I try to give people a tagline about what to send us or what kind of companies we want to see, I think If its got weird physics or weird computing, send it our way.

Before you snicker, note that Quantonations approach of combining deep tech expertise and narrow market focus seems to be working. Its portfolio of companies include many well-known up and comers in quantum such as Nord Quantique (quantum computer, superconducting qubits), Multiverse Computing (quantum software), Diraq (quantum computer, quantum dot qubits), PASQAL (quantum computer, neutral atom qubits), Qubit Pharmaceuticals (software, drug discovery), Orca Computing (quantum computer, photonic qubits), Kipu Quantum (application-specific quantum computer), Quobly (quantum computer, silicon spin qubits), QphoX (quantum modem).

Heres an excerpt from yesterdays announcement:

Our first fund, Quantonation I (a 2021 vintage) the first ever quantum-focused fund raised 91 million beyond our original target, making investments in 27 companies worldwide, with two exits. We have invested in spin-outs from the most recognized academic ecosystems worldwide, like MIT, Ecole Polytechnique, Institut dOptique, Oxford University, Waterloo University, University of Sherbrooke and more. We monitored over 600 startups developing Quantum Technologies over the last five years, constituting the fields most significant deal flow. The fund has had strong performance, putting it in the top quartile of Venture Capital investors, even in a period where other venture investments are feeling a pullback.

We believe that the first era of pioneers in quantum computing is coming to an end. Advancements in hardware and software development are driving the quantum sector towards enterprise-grade use and a supply chain is developing to support faster iteration of new, scalable ideas. Many are starting to realize what has been a core part of our thesis: this is not a race to build the quantum computer. It is an interlocking ecosystem of products and applications across computing, networking, and sensing that will have a profound impact across many fields.

What does it take to convince VCs to bet on your quantum company? Why does Quantonation think the time is right for making VC bets on quantums future? Zeng talked with HPCwire in the lead-up to launching its second early stage quantum tech fund. Besides looking at his own background, he touches on why Quantonation prefers hardware (generally), why the interlocking quantum supply chain is an important factor, and, broadly, what Quantonation looks for in company founders.

Perhaps not surprisingly, he said little about specific technology favorites it is, after all, a competitive world but he draws an interesting picture of Quantonation and its strategy. To date, the bulk of Quantonations clients are European. While the VC aspirations are worldwide, Zeng gives the impression hes on the prowl for U.S. opportunities.

HPCwire: Lets start with some background on you and Quantonation.

Will Zeng: Im 15 years into quantum technologies. I started working on superconducting qubits in the Yale group. So Im kind of a younger part of the Yale mafia as an undergrad. Theres a lot of graduates around from then, and I was lucky enough to learn a ton from them. That got me very excited about the potential in the space. Then I did my Ph.D. in computer science, actually, on the algorithm side. So my whole career, Ive kind of gone back and forth between what I see are the major questions with technologies like this, which are how do you build it and what do you do with it. My Ph.D. is more around how to use it. After that, I had the chance to go to Silicon Valley and be part of the initial team at Rigetti Computing, where we were just trying to get some things off the ground and launch some processors. Then I went back over to the how-to-use-it side, starting an advanced computing R&D group for financial applications at Goldman Sachs. It wasnt just quantum stuff. The portfolio had many long lead things, which is what quantum fits into, [and because] that stuff was so long lead we could publish, which is not always that common for a bank.

But theres also a lot of other exciting new computing directions that are happening now. Because of Moores law [decline], because of the endless hunger for compute to things like AI systems, the need to look at alternatives has become more important. I spent some time doing that and also getting exposed to kind of the other side of things, of how companies work. In AI, my colleagues in investment banking were looking at all sorts of transactions with advanced computing and physics type companies, and I got pulled into that. The last thing along the way is I started this nonprofit called the Unitary Fund. Well talk more about this, like just how early this whole ecosystem in industry is. Theres all these things that were going to need to build. Some things can be built by companies really well, but some things its hard to build for companies, [while] academics can. Companies can make products that you can sell to make money. Academics can produce papers with new knowledge. And theres all these enabling things in between, these sort of public goods, open source toolkits, educationally things, networks, standards, all this kind of stuff and the Unitary Fund started about five and half years ago to help plug those gaps.

Thats sort of the summary of my career up till last year when I moved over to join Quantonation. Id had the chance to check the boxes of a lot of different ways of doing things in quantum tech, as an academic, at a big company, at startups, at nonprofit, and was excited about the opportunity and looking at this as an interlocking ecosystem.

HPCwire: No doubt having such varied experience is useful. To many observers the quantum marketplace still looks so young particularly for investors. I think of Rigetti and D-wave, for example as cautionary tales in that both went public and later faced de-listing. Thoughts?

Will Zeng: Yeah, I will say it is early. Its just barely getting started to be reasonable to have fun in this area.

HPCwire: How did you came to join Quantonation?

Will Zeng: So to Quantonation is me and two other partners Christophe Jurczak and Olivier Tonneau who are the founding partners. I met Christophe back in 2016-2017. He, like me, has a background in quantum physics and technologies but his Ph.D. was in the late 90s, which he did with Alain Aspect who won the Nobel Prize in physics last year (2022). Hed gone off and worked in defense tech or solar tech, and then was like, Ah, now I know how to build things, maybe theres a moment to kind of come back to quantum. When I went out Silicon Valley we got in touch that and he was starting to put together the first fund he and Olivier started investing in quantum technology companies in 2018. They raised a fund, its a French fund; actually, it was originally in Silicon Valley, but [they] found investors really excited back in France. So the first fund was a 91 million vehicle that closed in officially in 2021. But they started investing in 2018 and I had been tracking all of this, known them, and Christophe had joined the board at Unitary Fund a couple of years ago and we had the chance to work together. Their fund was doing pretty well and had plans for a second fund and asked me to join them.

HPCwire: Lets talk about Quantonation and its strategy.

Will Zeng: Generally, there are two approaches VCs can take. One is just structurally about how to make money and have impact. A lot of VCs are pretty undifferentiated. I think theres two ways to go. One way is you have a global brand that everyone knows is the best, and then you kind of get to see everything, and you skim the cream off the top. Thats a nice place to be. The alternative is you become that in a very focused niche and we are in quantum technologies, and increasingly in adjacent kinds of things around advanced computing and physics-related technologies.

Theres not a lot of VCs who have backgrounds like mine and Christoph and Olivier. Not only do we have that background, but our fund is focused on that too. We dont have to, in our partner meetings, make trade-offs that against like a b2b SaaS investment. We know were going to do that diligence, we know were going to look at the physics stuff. When founders meets with us they know, were going to be able to not only have the background to go deep with them, but also have the incentive around what our fund is focused on. Thats built a reputation for us with founders and with the co-investors and follow-ons, folks who can look to us to signal when somethings good in the very early stage.

When we see something wed like to lead, which we typically typically do, we get deeply involved because we see ourselves as really needing to go get that conviction on things that other people might miss because they just dont have the time or the skills to get into it.

HPCwire: In that vein, the Quantonation web site lists four focus areas quantum computing (hardware and software), quantum networks, quantum sensing, and deep physics. Maybe flesh out these categories for us and talk about what you look for in a company?

Will Zeng: (laughing) When I try to give people a tagline about what to send us or what kind of companies we want to see, I think If its got weird physics or weird computing, send it our way.

HPCwire: Well, what are you looking for? And what kind of exit timeframes are you looking for? What are your expectations in terms of milestones, etc.?

Will Zeng: The fund is a pretty standard structured fund, the first one and now the second one you know, 10-plus-one year venture funds. Not only are we evaluating technologies that come to us, we need to solve that problem that these things can exit in the timeframe that we care about. In order to have a view on that, we really need to have a view on the ecosystem and whichever ecosystem that companies are in. This is a second reason that I wanted to kind of join Quantonation and why I think the [quantum] opportunity is particularly exciting now. Weve had a shift. I think the way people have been thinking about quantum technologies is going to be different and with a different philosophy in the next few years. Five or six years ago, and we were getting started, Rigetti Computing coined this term, full stack quantum computing. People got it in their heads that if someone builds a big quantum computer, that will be a big, valuable venture company. So lets take bets on whos going to build the big quantum computer. [At the time] there was no real industry. It was about taking the shots on goal to do the whole vertically integrated thing. Thats really hard. And its very different than where things are at now.

Increasingly, where things are going is that theres a supply chain. Theres overlapping and related technologies. Were seeing big quantum computing companies, even in the relatively vertically-integrated quantum computing companies, selling adjacent technologies, [such] as silicon photonics technologies and detector technologies that have other kinds of applications. Yes, the growth area will be quantum tech sales for them, but theres other things that that they can do. And when it comes to reaching quantum advantage, you hinted at this earlier, sensors already have it. Right. But that doesnt mean it doesnt mean were done. The question with sensors is where can you find the big markets, where their technological improvement really matters? So that you can then do the engineering to decrease the size, weight and power kind of stuff.

One last thing Ill say is another example of how these are all interrelated. Making sensors better often involves thinking about networking those sensors. In order to do that, you need memories, and these are different components. If you have a great sensor technology, youre probably going to start developing components are useful for longer-term for quantum computing. So that these things really feed into each other. Over the next three, five years, I think folks are going to start to see more of that.

HPCwire: How concerned about hype and backlash are you? To outside observers, it feels like expectations have been ratcheted sky-high while most of the quantum technologies, certainly quantum computers, are still pretty nascent. For example, PASQAL is one of Quantonations companies. It recently spelled out a roadmap to delivering 10,000 physical qubits in the 2026 time-frame and 126 logical qubits around 2028 The company is doing well but that seems aggressive.

Will Zeng: Of course its aggressive. The whole aim of the game is to be aggressive. The question is, is it totally unreasonable? You got to be able to walk the line. I think we want all of our companies to be aggressive. I think another thing people dont realize about this ecosystem is that its such an exciting topic, just intellectually. You know when Shors algorithm was broken, in 94, it hit headlines. Pretty soon youre seeing, it in New York Times style headlines.

15 years ago, there were effectively close to zero companies even though it had been in public consciousness. Even today, when everyone acknowledges its grown so much bigger than it was, private VC investment, including the SPACs and stuff, is less than $4 or $5 billion, right, globally. Thats the size of one investment into Anthropic (AI). One round. So I think when folks try and estimate timelines in this space, and looking at things with how weve progressed, historically, they dont realize how much that can change with how much bigger this field is going to start to get. Its much more serious now. I think that timelines are going to accelerate.

Remember, its still small, I mean Intel got an eight and a half billion dollar subsidy from CHIPS to build new fab. So thats like the whole quantum technology market. You know, other late stage VCs and customers, theyre in the same boat as you but look, the markets are going to figure this stuff out. Of course, its complicated and, but give it give it a little bit of time.

HPCwire: So give me five or six things you look for in a company, and maybe talk a little about your expectations for.

Will Zeng: Again, I should say were not just looking at quantum technologies. Were an early stage investor and Ill give you an example kind of our bread and butter was sort of like, a first-check-then-proceed kind of thing. Often the shape in these kind of fields is coming out of an academic or another research environment. And its starting around a really novel, technological breakthrough, a differentiator, and usually, from somebody whos got a track record, and sometimes very significant track record. Something we see is, and I like the shape of, is sometimes you have an academic whos more senior in their career, theyve been working in this space for 21 years, lets say over a decade. Now, finally, they see a way to start to maybe commercialize [a technology] and it feels like a lifes mission opportunity kind of thing. I love talking to founders like that. Or its their graduate students who went into the field thinking, Oh, its going to be this kind of obscure research and [realize], wow, maybe theres way I can have impact much faster.

In terms of things were looking for, we start with is there a real technology? Real new innovation? Secondly, is there a team that matches having a world class innovation? I dont want to rule out outsiders, [but] I think in physics, tech, and really advanced computer tech kind of stuff, its hard to be a 19- or 20-year-old dropout. We will always look for those the great people to meet, but we see less like that. So technology breakthrough, the team and track record. Thirdly, were looking for the entrepreneurial [bent]. Were not funding science projects. We are very excited in the early stage about taking on serious engineering risk. But science risk is not for venture funding. Looking at some of the AI stuff is kind of a good example. People say this kind of hard tech is difficult, its capital intensive. On the other hand, it has real Moats. When you have this, the kind of indicators that Im saying, you know, a lot of the advances in AI, its a few people who have some software ideas, and if they get a hold of the GPU cloud, they can get to the cutting edge. Thats just not the case for, like building a quantum computer.

HPCwire: One area of frequent discussion is the competition between qubit modalities. It seems like theres a new one or version of one every day. Do you have favorites?

Will Zeng: Well, I think the best answer is to look at where we put or money and we know this field really well. Weve taken a portfolio approach to the modalities, and I think thats the right thing to do right now.

HPCwire: So neutral atoms and photonics at the moment. I dont think you have a superconducting qubits currently.

Will Zeng: No, we do. Nord Quantique. They just showed some impressive error correction results. Theyre really exciting. And then were also invested in silicon quantum computing with Quobly and Diraq.

HPCwire: Thats right. I recall the recent Diraq funding round ($15M).

Will Zeng: I got to spend all of January down in Australia (with Diraq). Theyve got a great ecosystem on the academic side down there. So maybe theyll be more coming out, too. But the other thing Ill say is, the science community is not out of ideas for ways to make quantum computers from novel kinds of things [e.g.qubit modalities] all the time, some of which are not so good. Its not like the ideas we have today are so easy that we wont look for others. So the idea is to balance

HPCwire: So the idea is to balance your portfolio with those strong contenders, and maybe also look for the occasional outlier that you think has a real, a real high payoff?

Will Zeng: Exactly. Maybe medium or long-term, [quantum computing] will follow the same trajectory as classical computing, where theres a photo-lithography and x86, convergence, but we should remember there were several decades before that stuff. Even within that landscape theres lots of different spectrums, especially with people looking at ASICs for all sorts of applications. I think its unlikely that in the next like two or three years theres going to be some emergent winner. Even if there is within some modality, like neutrals [neutral atom-based qubits}, therell be a bunch of competitors that come up with different ways to do neutrals.

So the answer for companies coming to us is just the idea, have a clear a way to clearly describe the scientific, technological, technological idea that they have. Were happy to start there.

HPCwire: As the technology mature, do you think the software ecosystem now will become more generic and standard enough that some of the quantum mystery will be abstracted away and users and developer wont haves to worry about it?

Will Zeng: Eventually we want things to be API calls. But I dont know. When you think about long term stuff, there can be a lot of IP and trade secrets in the hardware which can last decades. Thats harder in software. Its not that we dont want invest in application companies, Qubit Pharmaceuticals is a great example of what I was saying earlier. It started with a couple of academics, who were really experts in quantum chemistry, and they didnt really know whos going to be CEO, and Christophe and Olivier helped put together that team and and so when we talk to people that can really start with some technological idea.

HPCwire: Bottom line, the technology idea must have to have some distinct advantage over existing technologies? Is that also part of the criteria?

Will Zeng: Yeah, absolutely. It can be cheaper, could be faster, could be more robust, could do a whole bunch of different things better, but its got to be significantly better.

HPCwire: In looking at the four areas you focus on, can you talk about the timetable to pay off within each of them? How close are any of those to delivering products that will start to be in a production environment?

Will Zeng: So sensing and the deep physics stuff thats happening now, but youre still looking for great companies, big markets, great teams, big returns. Ill talk a bit about what I see happening with quantum computing over the next couple of years. Weve seen a few demonstrations of arguable supremacy and advantage in kind of relatively academic or demo contexts. Whats pretty clearly going to happen in the next three to five years is there are going to be many machines of different modalities that are all doing things that you cant just trivially simulate with supercomputers or even nontrivially simulate with a supercomputer.

Thats a new kind of computing resource. If you know exactly what were going to run on, it might be first niche applications, things in scientific simulation, which is already, as you know, a big consumer of HPC. But thats the beginning of these relatively niche market beachheads. And thats going to change things up. PASQAL is a good example, because they have spent quite a bit of engineering effort not just improving the system they have in a pseudo academic lab, but theyve actually been building systems to ship them, to engineer them to be up and running for long periods of time. Which is all going to matter when you really start pushing use cases and use case development and going in production. So the next couple years is where we start to really have quantum computing as a platform thats different than regular computing.

HPCwire: Will we see more on-premise deployments? There havent been too many outside of research environments so far. I keep expecting to see a few more of these relatively easy-to-manage machines in commercial environments. Or is it still early?

Will Zeng: People are clearly interested in it, though I dont think thats the only way people are going to play. Cloud access is something different corporations make business decisions to use.

HPCwire: It is so much cheaper and carries much less risk. And the tools are all there and usually access to multiple modalities is at this stage, its a great place to learn.

Will Zeng: One thing thats worth saying is even if its on the cloud, you still need many engineered, maintainable systems up and running. Frankly, theres a lot of folks who say, yeah, weve got a system on the cloud. That is very different from it really being a platform that lots of work can happen on.

HPCwire: Whats your sense of the global race to develop quantum technologies?

Will Zeng: Ill start with the fact that ultimately quantum companies are coming from some deep technology innovation, and that ultimate comes out at an academic environment. Scientific and academic talent is pretty evenly distributed around the world, compared to lets say late stage venture funding, which is concentrated in New York. We look globally for companies because of that. Then there are different ecosystems that make life easier or harder.

Most European countries have in the last couple of years taken very seriously this area. They dont want to miss out. I think theres a feeling that some of the technology that in many ways was invented or at least contemporaneously invented in Europe and can become large commercial companies; so they dont want to miss out. We look for opportunities there, but not just there. For example, Australia has a big push in quantum Tech. A lot of countries see the example of the last couple of decades and dont dont want to miss opportunity to get a wedge in whats not just a new company, or a new product, but a whole industry.

HPCwire: It seems like Europe has is doing a more deliberate job at trying to figure out how to integrate quantum systems into traditional HPC centers whereas the US maybe has been a little bit behind on that the idea of taking a quantum system and integrating it into your your data center, whether its a big supercomputer or a corporate data center. Do you see that as well?

Will Zeng: [Maybe] from a from just a government perspective. But Im an American. Im based in New York City, and we make investments in the US; we think this is a great place to do technology development and with things like the CHIPS act, were seeing the US government interested in industrial policy.

HPCwire: Thanks for your time, Will.

Excerpt from:
The VC View: Quantonation's Deep Dive into Funding Quantum Start-ups - HPCwire